Allocation Of The $3 Billion TANF
Rescission Among States Would Treat Some States InequitablybyEd Lazere

Overview

The Labor-HHS-Education appropriations bill that a House
subcommittee approved September 23 would rescind $3 billion in TANF block grant funds
allocated to states and re-appropriate these funds for fiscal year 2001. This measure is
part of an effort by the House Leadership to "make the numbers fit" for the
Labor-HHS-Education bill and the appropriations bills in general.

As another Center analysis
explains, this measure would be likely to hinder state initiatives designed to help poor
families reach self-sufficiency.(1) Once the precedent of
rescinding TANF funds is established, that will increase the likelihood of further
rescissions in the future. Lacking an assurance that all rescinded funds will be returned
in fiscal year 2001  when Congress must squeeze appropriations within the tight
discretionary spending caps for that year  many states are likely to treat this
rescission as a cut rather than a deferral. If a stable TANF funding stream is no longer
assured, states are likely to be wary of mounting new TANF-funded initiatives to aid
hard-to-employ families remaining on the welfare rolls or to assist struggling working
poor families.

Furthermore, as the analysis below indicates, the rescission would
affect many states inequitably. Under the rescission the House Labor-HHS-Education
appropriations subcommittee has adopted, the amount to be rescinded from each state would
be based on each state's share of the national amount of "unobligated" TANF
funds as of September 30, 1999. That, however, is a poor measure of unspent state TANF
balances and would result in some states bearing inequitably large shares of the
rescission. This problem could become severe if Congress did extend the rescission a year
from now to help meet the budget caps for fiscal year 2001.

Unspent TANF funds fall into two categories  funds that have
been "obligated" but not yet spent, such as funds committed under a contract for
services to be delivered, and funds that have not been obligated. How unspent TANF funds
are categorized as "obligated" or "unobligated" varies greatly among
the states. Unspent TANF funds considered obligated by one state would be considered
unobligated by another state.

To be considered "obligated," funds are supposed to have
been committed for a specific purpose. Some states, however, evidently are reporting TANF
funds that have not been committed as being obligated. States that have significant
amounts of unspent TANF funds but little or no self-reported "unobligated" funds
would be left largely untouched under the House rescission plan. Because these states
would largely escape the rescission, the amounts rescinded from the other states would be
larger.

As a result, basing the amount of funds to be rescinded from a state
on that state's share of the "unobligated" funds nationally would unfairly
penalize states that have used a narrow definition of what constitutes an obligation,
while favoring states that have used a very expansive definition.

The attached tables illustrate the wide variation among states in
the definition of an obligation of TANF funds. Table I shows that some states report most
or all of their unspent TANF balances as being obligated, while other states report little
or none of their unspent funds as obligated. Table II shows how the House rescission would
be allocated among the states, based on unobligated TANF funds as of March 31, 1999, the
most recent TANF financial data currently available.(2)
(Data on unobligated funds as of September 30, the date called for in the House bill, will
not be available until mid-November.) The table shows that for many states, the percentage
of the $3 billion rescission the state would bear differs significantly from the
percentage of unspent TANF balances for which the state is responsible.

Indiana accounts for two percent of unspent TANF funds nationally, as
the second column of Table II shows. Because it reports all such funds as
obligated, Indiana would face no loss of funds under the House rescission.

Michigan's share of total unspent TANF funds nationally is about the
same as Indiana's  2.2 percent. But because Michigan reports all of its unspent TANF
funds as being unobligated, it would be affected significantly. As Table II
indicates, Michigan would lose $117 million under the rescission. This would constitute
3.9 percent of the $3 billion recession for the nation as a whole, nearly double
Michigan's share of total unspent TANF funds.

In a number of states, the rescission would represent a very large
share of the state's unspent TANF balance. In 21 states, the rescission would consume
more than two-thirds of the state's unspent TANF balance. (See Table III.) Moreover,
many states have set aside TANF funds as a "rainy day" reserve to be tapped in
an economic downturn. Under the rescission, a number of states that have taken this
prudent step  and have appropriately reported their rainy day reserve as unobligated
 could be left with reserves much smaller than the state has planned for (and in
some cases, less than state law requires). If not restored, the rescission could leave
some of these states especially vulnerable in the event of an economic downturn.
Meanwhile, other states that have categorized their rainy day reserve as an obligation of
funds would be protected.

States that Would
be Most Inequitably Affected
By the $3 Billion TANF Rescission

As this analysis indicates, the TANF rescission the House
Labor-HHS-Education Appropriations Subcommittee has approved would adversely affect states
that report most or all of their unspent TANF funds as "unobligated." The shares
of the rescission borne by these states would be significantly larger than these
states shares of total unspent TANF funds.

In 23 states, the share of the rescission the state would bear would
be at least 50 percent higher than the states share of the unspent TANF balance
nationally. (In other words, the rescission amount would be at least 50 percent larger in
these states than if the rescission were based on total unspent funds.) In another five
states, the rescission would be between one-fourth and one-half larger than the
states share of total unspent funds.

States in which the Rescission Would be At Least
50 Percent Larger than the States Share of Unspent TANF Funds

Alabama

Michigan

Oklahoma

Connecticut

Minnesota

Rhode Island

Idaho

Nebraska

South Carolina

Kansas

New Hampshire

Utah

Kentucky

New Jersey

Vermont

Louisiana

New Mexico

Washington

Maine

North Carolina

West Virginia

Maryland

North Dakota

In virtually all of these states, the rescission
would represent more than two-thirds of the states unspent TANF reserve.

States in which the Rescission Would be 25 Percent
to 50 Percent Larger than the States Share of Unspent TANF Funds

Florida

Mississippi

New York

Tennessee

Washington, DC

The equity problems posed by how the rescission would
be apportioned among the states are explored more fully in the remainder of this analysis.

The term "unliquidated obligations" refers to amounts that
a state has committed to spend but has not yet spent. This could include, for example,
funds that a state has contracted to pay a private service provider, such as a child care
agency, but has not yet paid because the service has not yet been provided. Unliquidated
obligations also can include payments that a state is processing but has not yet issued
for services that have already been provided.

"Unobligated" funds are funds a state has neither spent nor
committed to spend as of a given date.

Because unliquidated obligations are supposed to reflect amounts
committed to be spent, it might seem appropriate, at first blush, to base a rescission on
each state's share of the unobligated TANF funds nationally. But for such an approach to
be equitable, the determination of what constitutes an obligation of TANF funds must be
uniform across the states. That is not the case.

Table I shows that some states have consistently reported substantial
amounts of their unspent TANF balances as "obligated." For example, Arkansas,
Colorado, Indiana, Montana, Ohio, Oregon, and Texas have substantial amounts of
unliquidated obligations and typically report having little or no unobligated TANF funds.
By contrast, 22 states reported that none of their unspent TANF funds as of March
31, 1999 were funds that had been obligated but not yet spent.

In some of the states with sizable amounts of unliquidated
obligations, a portion of the funds designated as obligated may reflect funds that would
be considered unobligated in other states. For example, some states report as
obligated all TANF funds that have not been transferred or expended, whether or not those
funds have been committed for a specific purpose. State officials in Montana, Nevada, and
Wyoming who prepare the TANF financial reports confirmed this practice in telephone
conversations with the Center on Budget and Policy Priorities in late 1998.

In addition, some states apparently report TANF funds that they set
aside in "rainy day" reserves as obligated. Other states classify such funds as
unobligated.

Finally, some states with county-administered welfare programs may
consider funds to be obligated once they have been allocated to counties, regardless of
whether the counties have yet made commitments to spend those funds.

Until the issuance of final federal TANF regulations in April 1999,
instructions for filing TANF financial reports did not call for states to use any
particular definition of what constitutes an obligation of TANF funds. This may have
contributed to the inconsistent interpretation of this term in the financial reports that
states have submitted to HHS. Starting with fiscal year 2000, states will be required to
use a standard HHS definition of this term.(3) This
directive, however,does not apply to state reports on funds unspent as of
September 30, 1999. Consequently, it does not apply to the data to be used to determine
the amount that would be rescinded from each state under the House measure.

Major Equity Problems

Because states vary so substantially in determining when unspent
TANF funds should be reported as obligated, a rescission based on each state's report of
unobligated funds would be inequitable. A state that has reported all of its unspent TANF
funds as being obligated would escape the rescission. But a state reporting most or all of
its unspent TANF funds as being unobligated would bear the brunt of the rescission. Such a
state's share of the $3 billion rescission would substantially exceed its share of unspent
TANF funds overall.

In many of the states reporting most of their unspent TANF funds as unobligated,
the rescission would gobble up at least two-thirds of the unspent TANF balances. That
could lessen the ability of many of these states to implement measures to provide more
intensive employment-preparation assistance to those families that remain on the public
assistance rolls with the time limits approaching, and to provide more significant
assistance to families that have left welfare for work but remain thousands of dollars
below the poverty line.

Table II shows each state's unspent TANF funds as of March 31, 1999
 including both unobligated funds and unliquidated obligations  and the
distribution of unspent funds nationally. The third and fourth columns of the table show
the percentage of each state's TANF funds that would be rescinded, and the distribution of
the rescission among the states. Table III measures the amount to be rescinded from each
state as a percentage of that state's total unspent TANF balance.

Examination of the table indicates that equity problems abound.

For example, Louisiana's rescission would amount to $76.5 million, or
2.6 percent of the total amount rescinded nationally. That would be nearly twice
Louisiana's share of the unspent TANF funds nationally, which is 1.4 percent.

In 22 states, the share of the rescission the state would bear would
be at least 50 percent greater than the share of the unspent TANF funds for which the
state is responsible. Using Louisiana as an example, its 2.6 percent share of the
rescission, based on unobligated funds, would be more than 80 percent larger than if its
rescission were based on its 1.4 percent share of total unspent TANF funds.

Because the rescission would be disproportionately large for some
states (while being disproportionately small for others), some of the states affected most
heavily would lose access to a large share of their unspent TANF balances. In a majority
of states, the rescission would take more than half of the state's unspent TANF balance.
For example, in Washington state, the $134 million rescission would equal nearly
three-fourths of the $187 million in unspent TANF funds the state reported as of March 31,
1999. (Washington reported having no unliquidated obligations.)

By contrast, in the 16 states that would be affected most lightly by
the rescission, the rescission would consume less than one-fourth of the unspent TANF
balance. As one example, Texas would face a rescission of $28.4 million, only 11 percent
of its unspent TANF funds. Texas would absorb less than one percent of the rescission
nationally. But it accounts for 3.4 percent of total unspent TANF funds.

This problem is not easy to solve. An approach that bases the amount
of TANF funds each state would lose under a rescission on each state's share of the total
amount of TANF funds unspent nationally also would be inequitable. Although a portion of
the funds reported as unliquidated obligations by some states have not actually been
committed, in other states, the funds classified as unliquidated obligations do represent
funds that have been committed for services or benefits and cannot be pulled back without
creating serious problems. Given the inconsistent classification across states of when
TANF funds should be considered as obligated, it is extremely difficult to ascertain, on a
comparable basis across states, the amount of TANF funds that are both unspent and
uncommitted.

TABLE I

Unspent TANF Funds as of March 31 1999
Broken Out By Unobligated Funds and Unliquidated Obligations

Unspent TANF Funds as of March 31, 1999,
As Compared with the Distribution of the $3 Billion TANF Rescission

$3 Billion Rescission

Total

(Based on Unobligated Funds)

Unspent TANF Funds

Distribution of

Percent

($ figures in millions)

(As of 3-31-1999*)

Unspent Funds

In Dollars

Distribution

Alabama

$46.9

0.6%

$33.6

1.1%

Alaska

$19.8

0.3%

$4.3

0.1%

Arizona

$111.0

1.5%

$50.6

1.7%

Arkansas

$37.5

0.5%

$1.2

0.0%

California

$1,725.3

22.8%

$377.4

12.6%

Colorado

$96.4

1.3%

$4.0

0.1%

Connecticut

$9.7

0.1%

$6.9

0.2%

Delaware

$0.0

0.0%

$0.0

0.0%

District of Columbia

$40.0

0.5%

$22.8

0.8%

Florida

$406.6

5.4%

$224.7

7.5%

Georgia

$112.9

1.5%

$54.1

1.8%

Hawaii

$2.0

0.0%

$0.8

0.0%

Idaho

$38.4

0.5%

$27.5

0.9%

Illinois

$0.0

0.0%

$0.0

0.0%

Indiana

$149.9

2.0%

$0.0

0.0%

Iowa

$44.8

0.6%

$4.3

0.1%

Kansas

$24.2

0.3%

$17.3

0.6%

Kentucky

$30.5

0.4%

$21.9

0.7%

Louisiana

$106.8

1.4%

$76.5

2.6%

Maine

$5.1

0.1%

$3.7

0.1%

Maryland

$182.0

2.4%

$111.7

3.7%

Massachusetts

$75.5

1.0%

$0.0

0.0%

Michigan

$163.1

2.2%

$116.9

3.9%

Minnesota

$180.1

2.4%

$129.1

4.3%

Mississippi

$87.2

1.2%

$43.8

1.5%

Missouri

$48.7

0.6%

$0.0

0.0%

Montana

$39.5

0.5%

$0.7

0.0%

Nebraska

$4.7

0.1%

$3.3

0.1%

Nevada

$8.9

0.1%

$0.0

0.0%

New Hampshire

$8.8

0.1%

$6.3

0.2%

New Jersey

$281.1

3.7%

$165.5

5.5%

New Mexico

$75.6

1.0%

$50.6

1.7%

New York

$951.3

12.6%

$551.1

18.4%

North Carolina

$100.0

1.3%

$71.6

2.4%

North Dakota

$11.1

0.1%

$7.9

0.3%

Ohio

$655.3

8.6%

$98.8

3.3%

Oklahoma

$132.5

1.7%

$95.0

3.2%

Oregon

$117.3

1.5%

$0.0

0.0%

Pennsylvania

$235.0

3.1%

$109.1

3.6%

Rhode Island

$21.7

0.3%

$15.6

0.5%

South Carolina

$51.4

0.7%

$36.8

1.2%

South Dakota

$15.8

0.2%

$3.2

0.1%

Tennessee

$115.7

1.5%

$58.3

1.9%

Texas

$258.2

3.4%

$28.4

0.9%

Utah

$19.2

0.3%

$13.8

0.5%

Vermont

$7.8

0.1%

$5.6

0.2%

Virginia

$55.0

0.7%

$16.4

0.5%

Washington

$186.7

2.5%

$133.8

4.5%

West Virginia

$108.4

1.4%

$77.7

2.6%

Wisconsin

$325.6

4.3%

$114.2

3.8%

Wyoming

$47.7

0.6%

$3.2

0.1%

* This includes
unobligated TANF funds plus unliquidated obligations of TANF funds as of March 31, 1999.READING THIS TABLE:Column
two shows each state's share of total unspent TANF funds. Column Four shows each state's
share of the amount that would be rescinded under the House proposal. For states in which
column four is greater than column two, the state's share of the rescission would be
greater than its share of the unspent TANF funds nationally.Center on Budget and Policy Priorities

2. These data are from the
"ACF-196" TANF financial reports states that have submitted to the U.S.
Department of Health and Human Services for the quarter ending March 31, 1999. These
figures differ from those in a table prepared earlier by HHS, which were based on
unobligated TANF funds as of December 31, 1998. The March 31 TANF financial reports were
collected from each state by the Center on Budget and Policy Priorities.

3. The regulations define obligations as
"amounts of orders placed, contracts and subgrants awarded, goods and services
received, and similar transactions during a given period that will require payment by the
grantee during the same or a future period." Unliquidated obligations are those
obligations for which payment has not been made. See 45 CFR § 92.3.